Land of Lincoln Mut. Health Ins. Co. v. United States

• Decision Date: 10 November 2016
• Docket Number: No. 16-744C,16-744C
• Parties: LAND OF LINCOLN MUTUAL HEALTH INSURANCE COMPANY, Plaintiffs, v. UNITED STATES, Defendant.
• Court: U.S. Claims Court

LAND OF LINCOLN MUTUAL HEALTH INSURANCE COMPANY, Plaintiffs, v. UNITED STATES, Defendant.

No. 16-744C

United States Court of Federal Claims

November 10, 2016

Claim by qualified health insurance plan participating in a federally-run state Exchange to damages based upon statutory or regulatory entitlement to receive "risk-corridors" payments; Section 1342 of the Patient Protection and Affordable Care Act, 42 U.S.C. § 18062; 45 C.F.R. § 153.510; claims for damages based upon alleged breach of an express contract, an implied-in-fact contract, or an implied covenant of good faith and fair dealing; takings claim

Daniel P. Albers, Barnes & Thornburg LLP, Chicago, Illinois, for plaintiff. With him on the briefs was Scott E. Pickens, Barnes & Thornburg LLP, Washington, D.C.

Terrance A. Mebane and Charles E. Canter, Trial Attorneys, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant. With them on the briefs were Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Civil Division, Ruth A. Harvey, Director, Kirk T. Manhardt, Deputy Director, Serena M. Orloff, Trial Attorney, Frances M. McLaughlin, Trial Attorney, and L. Misha Preheim, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington D.C.

OPINION AND ORDER

LETTOW, Judge.

Since 2014, Land of Lincoln Mutual Health Insurance Company ("Lincoln") has provided qualified health insurance plans in Illinois under the Patient Protection and Affordable Care Act ("the Affordable Care Act" or "the Act"), Pub. L. No. 111-148, 124 Stat. 119 (2010). In this action, Lincoln seeks damages under Section 1342 of the Act, codified at 42 U.S.C. § 18062, which establishes and governs a temporary program of "risk corridors" applicable to calendar years 2014, 2015, and 2016, where qualifying health plans ("QHPs") participating on health insurance Exchanges pay money to or receive money from the Department of Health and Human Services ("HHS"), depending upon the ratio of premiums received to claimed costs.¹

Lincoln is an Illinois not-for-profit company with its headquarters in Chicago that served nearly 50,000 customers on the Illinois Health Insurance Marketplace in 2014, 2015, and part of 2016. Compl. ¶ 13.² Lincoln suffered losses in 2014 and 2015 and thus is deemed eligible to receive payment from HHS under the risk-corridors program. HHS paid Lincoln approximately 12.6% of the amount Lincoln is due for 2014, and nothing for 2015. Compl. ¶ 8. As a general matter, the payments HHS owes to qualified health plan issuers under the program exceed the fees received by HHS under the program, and HHS has stated that it will make payments only from fees collected, to the extent such fees are available, on a proportional basis to those owed payment.

Lincoln filed its complaint on June 23, 2016, alleging that it had a statutory and regulatory entitlement to the full amount of the payments due it under the program for 2014 and 2015, totaling at least $72,859,053, and that the full entitlement was and is due on an annual basis. Compl. ¶¶ 9, 77. Additionally, Lincoln alleges that the government's actions breached an express or implied-in-fact contract, breached the implied covenant of good faith and fair dealing, and contravened the Takings Clause of the Fifth Amendment. Compl. ¶ 1. Shortly after the complaint was filed, Lincoln requested "expedite[d] disposition of this action" because, among other things, it otherwise lacked funds to survive as a continuing entity. Pl.'s Mot. for an Early Pretrial Conference Pursuant to Rule 16(a) at 1 (July 26, 2016), ECF No. 7. In that regard, Lincoln advised that "the State of Illinois Director of Insurance has obtained an Order of Rehabilitation against Lincoln dated July 14, 2016." Id. at 2. Absent an infusion of funds by September 30, 2016, the health insurance Lincoln was providing to citizens of Illinois would have to be cancelled. Id. Promptly thereafter, the court held a status conference with the parties, and, because the case involves a claim of statutory and regulatory entitlement, the court requested the government to file the administrative record of its regulations and its actions respecting Lincoln. See Hr'g Tr. 32:1-2 (Aug. 12, 2016). The court set an accelerated schedule for submission and briefing of potentially dispositive motions and calendared an early hearing. See Scheduling Order (Aug. 12, 2016), ECF No. 12. With one subsequent adjustment to theschedule, see Amended Scheduling Order (Oct. 18, 2016), ECF No. 36, the parties have followed this procedural path.

BACKGROUND

In 2010, Congress enacted the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119, to expand individual health insurance coverage. The Act requires health insurance providers offering health insurance in a particular state to accept all individuals and qualified employers applying for coverage in that state, subject to certain restrictions. 42 U.S.C. § 300gg-1(a). Further, the Act prohibits insurance providers from setting premiums based upon a particular person's health. See King v. Burwell, ___ U.S., ___, ___, 135 S. Ct. 2480, 2486 (2015) (citing 42 U.S.C. § 300gg); see also 45 C.F.R. §§ 147.108-116.

Additionally, the Act establishes health insurance "Exchanges," i.e., marketplaces within each state where individuals and qualified employers can purchase health insurance. See 42 U.S.C. § 18031. The Act provides that each individual state may administer its respective Exchange if it elects to do so, or, if the state elects not to establish an Exchange, "the Secretary shall . . . establish and operate such Exchange within the [s]tate." 42 U.S.C. § 18041(c)(1). Health insurance providers wishing to offer insurance coverage on an Exchange can only do so if they offer a "qualified health plan," which is defined within the Act and the implementing regulations. See 42 U.S.C. §§ 18021, 18031(b)(1)(A); 45 C.F.R. § 155.20. The Act requires insurers participating on the Exchanges to, among other requirements, be certified as qualified health plans. See 42 U.S.C. § 18031(d)(4)(A), (e); 45 C.F.R. § 155.20.

A. The Risk-Corridors Program

Because the Act enabled health insurance coverage to be made available to many individuals who were previously underinsured or uninsured, Lincoln alleges that health insurance providers "had no previous experience or reliable data to meaningfully assess the risks and set the premiums for this new population of insureds." Compl. ¶ 4. Recognizing this uncertainty, Congress established three stabilization programs, see 42 U.S.C. §§ 18061-18063, to mitigate the uncertainty and pricing risks for insurers, which programs have become commonly known as "reinsurance," "risk corridors," and "risk adjustment," respectively. See HHS Notice of Benefit and Payment Parameters for 2014, 78 Fed. Reg. 15,410, 15,411 (Mar. 11, 2013), AR 1807;³ Def.'s Mot. to Dismiss and Mot. for Judgment on the Administrative Record on Count I ("Def.'s Mot.") at 6, ECF No. 22. The risk-corridors program established under Section 1342 of the Act, which is the stabilization program pertinent to Lincoln's claims, was designed to "protect against uncertainty in rate setting for qualified health plans by limiting the extent of issuers' financial losses and gains." HHS Notice of Benefit and Payment Parameters for 2014, 78 Fed. Reg. at 15,411, AR 1807. The risk-corridors program is a three-year temporary program that pertains to the calendar years of 2014, 2015, and 2016. 42 U.S.C. § 18062(a). It applies only to qualifiedhealth plans offered through an Exchange. Id.; see 45 C.F.R. § 153.510.⁴ The program was "based on" a similar program enacted under Part D of Title XVIII of the Social Security Act. 42 U.S.C. § 18062(a) (referring to Pub. L. No. 108-173, 117 Stat. 2066 (2003) (codified at 42 U.S.C. §§ 1395w-101 et seq.) ("the Medicare Program")).

The risk-corridors program calls upon HHS to provide a mechanism to even out the losses and gains of qualified health plans during the three-year phase-in period. See 42 U.S.C. § 18062(b); 45 C.F.R. § 153.510. When a qualified health plan issuer experiences a loss in a calendar year, such that the plan's "allowable costs" are more than 103 percent of the plan's "target amount" for that year, HHS is directed to pay the issuer a portion of that loss. 42 U.S.C. § 18062(b)(1); 45 C.F.R. § 153.510(b). Correlatively, when the issuer experiences a gain in a calendar year, such that the plan's "allowable costs" are less than 97 percent of the plan's "target amount" for that year, the issuer is directed to pay the HHS a certain amount of that gain. 42 U.S.C. § 18062(b)(2); 45 C.F.R. § 153.510(c). The "[p]ayments out" and "[p]ayments in" are specified by statute as follows:

(b) Payment methodology

(1) Payments out

The Secretary shall provide under the program established under subsection (a) that if -

(A) a participating plan's allowable costs for any plan year are more than 103 percent but not more than 108 percent of the target amount, the Secretary shall pay to the plan an amount equal to 50 percent of the target amount in excess of 103 percent of the target amount; and

(B) a participating plan's allowable costs for any plan year are more than 108 percent of the target amount, the Secretary shall pay to the plan an amount equal to the sum of 2.5 percent of the target amount plus 80 percent of allowable costs in excess of 108 percent of the target amount.

(2) Payments in

The Secretary shall provide under the program established under subsection (a) that if -(A) a participating plan's allowable costs for any plan year are less than 97 percent but not less than 92 percent of the target amount, the plan shall pay to the Secretary an amount equal to 50 percent of the excess of 97 percent of the target amount over the allowable costs; and

(B) a participating plan's allowable costs for any plan year are less than 92 percent of

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